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On Monday, I posted a story about one of the new hazards of buying a used car, namely the now-common practice by car dealers of forcing customers to waive their rights to access the legal system as a condition of buying a car. The idea is that if the dealership rips you off, you have to submit to private, binding arbitration, conducted by an arbitration firm hired by the dealership instead of filing a lawsuit. The rules in arbitration are a lot different than the regular courts, in ways that create hardships for consumers. Those hardships are a lot worse if you happen to be deployed to Iraq.

Today I heard a story from a Rhode Island consumer attorney named John Longo, who told me about a client of his who had a small dispute with a Jeep dealer over the title of a car he bought with a friend. The Jeep was financed through Daimler Chrysler Financial Services, and the sales contract and financing agreements included a mandatory arbitration clause forcing the car buyer to waive his constitutional right to go to court. So, after having to run up some legal bills fighting the car dealer over $220, Longo’s client filed a claim against both the dealer and the financing company with their pre-selected arbitrator from the American Arbitration Association.

Long story short, the customer got deployed to Iraq while the case was moving forward. Longo filed a request for a stay, to postpone the case until his client came back to the States. If the case had been in a regular court, Longo says a judge would have granted the stay automatically under the federal Service Members Civil Relief Act. Instead, though, Daimler Chrysler and the dealership objected and want to proceed without Longo’s client present, which they can do because in arbitration, a plaintiff is not even guaranteed a live hearing. It’s also unclear whether the federal relief act applies to arbitration.

Daimler Chrysler could cut the soldier some slack, but Longo says the company has refused. “It’s Daimler Chrysler’s policy,” he says, which isn’t surprising. The automaker/finance company (which sold its Chrysler half earlier this year) has been a major player in the American tort reform movement, which has spent millions to block individual Americans’ ability to sue big companies in court for fraud and other wrongdoing. Mandatory arbitration clauses have been a major component of that effort.

Daimler Chrysler’s former general counsel Steven Hantler has been one of the most vocal critics of the civil justice system, writing in the Wall Street Journal last year that, “The unfair civil-justice system at the state level has made the legal system in the United States the world’s most expensive and imposes huge costs on consumers and businesses alike…The ‘cost’ of a litigious society is borne by every resident in every state.”

Of course, the public also bears the cost of sleazy car dealers and finance companies, too, in a far more direct way, as Longo’s client discovered. While Hantler is on the public speaking circuit selling tort reform to business groups, Longo’s client, who might tell the other side of that story, has been instructed by the military to stay out of the press. Longo asked that we not publish his client’s name, but he says the case is a classic example of why most consumers are much better off in the traditional legal system rather than in private arbitration.

Update: Longo reports today that after we posted this item, he got an email from the arbitrator with a decision granting his request for a stay in the case. (We can’t claim credit for the decision, which was drafted, apparently, the day before.) It may be a while before Longo’s client gets the good news, as he recently informed Longo that he will be “outside the wire” for a month and out of email contact.

Despite the decision in his favor, the arbitration experience has prompted Longo to petition the Rhode Island Motor Vehicles Dealers License and Hearing Board to adopt rules that would prohibit car dealers from making customers submit to mandatory arbitration with any company that doesn’t abide by the federal Service Members Civil Relief Act.

Congress has already taken some steps in this direction by outlawing arbitration clauses in lending agreements made to military members and their dependents, but the new law didn’t come in time to help Longo’s client. Longo’s proposed rule would extend those provisions to military personnel who buy their cars with cash.

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